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Sun 1 Feb 2009 04:00 AM

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Stability the key for real estate majors

Real estate players need to prudently apply resources and management skills to ensure long-term sustainability.

Four months ago, and with the fault lines in the region's real estate sector already apparent to all but the most blindly optimistic observer, exhibitors at Cityscape Dubai unveiled projects worth an astonishing $140bn.

These included a $350m ultra-luxury resort on a manmade island 14km off Dubai's coastline, a $95bn development with varied microclimates and a ‘mini-Manhattan' at its centre, not to mention a 1km-high supertall skyscraper that threatened to put Burj Dubai in the shade.

By contrast, last week saw another show take place down the road in Abu Dhabi - and the mood was very different. Sorouh, the emirate's second largest developer, reflected the tone when it revealed it is delaying new projects until sales on current developments are completed.

Speaking on the sidelines of the Abu Dhabi Real Estate and Investment Show (IREIS), chief property development officer Gurjit Singh told Arabian Business that it is "prudent for developers to exhaust current stock before launching new ones". Gurjit, who oversees a $19bn portfolio in the UAE and abroad, added that new projects in the future would be "better planned", and have a sharper focus on cost management - a concept that perhaps did not receive the attention it deserved in the days when each villa, apartment or office was guaranteed to make both developer and freeholder rich.

Also last week, Emaar chairman Mohamed Alabbar warned that real estate prices in Dubai could fall by another 20 percent - a frank admission from the boss of the Middle East's largest property developer, and one that reflects the pragmatic stance now adopted by the Gulf's real estate majors.

It is an approach dictated by market realities: so far this year Emaar is down almost 10 percent, Sorouh more than 5 percent, and Aldar Properties 33 percent. Of the region's top five publicly traded real estate firms, only one, Saudi's Dar Al Arkan, is up with a .67 percent gain year-to-date (the stock, let's not forget, slumped 53 percent in 2008).

The UAE enjoyed the best of the property boom, but also left itself keenly exposed to a downturn in real estate fortunes. Nevertheless, it is a bellwether market in an industry that will prove vital to the region's hopes of sustainable economic growth and diversification - and shows such as IREIS and Cityscape act as useful markers along the road to recovery for the Gulf's beleaguered real estate sector.

All eyes now turn to April, and Cityscape Abu Dhabi. If October was about the last throes of the build-it-and-they-will-come philosophy, and IREIS was epitomised by an acceptance that the market has undergone a fundamental shift, then April's show could herald a new start for the sector. While no one would expect any recovery to kick in until at least the second half of 2009, both property price and stock price stability are attainable in the not-too-distant future.

Many of the fly-by-night firms that until so recently swarmed the UAE real estate market will have fallen by the wayside already. Dozens more will surely drop over the next few months. It's up to those with the resources - and the management skills - to weather the storm, to lay the considered foundations for a long-term sustainable real estate sector. Let last year's hyperbole be the last to be delivered from within a fractured bubble.

Andrew White is the editor of Arabian Business English.

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Peter 11 years ago

The sea change in the utterings of the leading property moguls is refreshing to say the least. They are finally being forced to deal with facts and not invented fiction, because the cranes are silent everywhere and shooting the moon cannot be done without funding. The media needs to remain vigilent and ensure that the moguls do not return to their "brag it and it will be" habits of old. They will gain much more respect, even in a chilly Davos.

mkp 11 years ago

I agree with Gurjit Sing "prudent for developers to exhaust current stock before launching new ones". Developers who have not completed Phase I are still demanding regular instalments for Phase II which have not broken ground as yet. The Sheikh should pass a decree that instalments for projects which have not broken ground should be extended by one year OR till such time they break ground. This will bring confidence to the market and people will hold on to their assets. RERA has brought in laws to protect the developers but no such law to protect the investor. Investors are loosing confidence in the Dubai realestate market because of one sided laws.

Hal-Luke Savas 11 years ago

There is a natural bond between clever speculation and clever management in the construction world. You can speculate for a project in good times and bad times and if you are good with market intelligence and strategic planning then you may hit the bulls-eye regardless. Subsequently, if you are a good manager, you can speculate in bad times and still hit the bulls-eye; but if you are bad manager, you can speculate in bad times and totally miss the bulls-eye. The big problem is a bad manager speculating in a bad time!! The solution is to train or educate the manager when and how to speculate (but not to gamble!!). This is why continuous professional development and instant-constant performance appraisal and constantly raising the benchmark is the prudent way to manage construction and development companies. In reflection of above article, a good manager or developer In UAE or saudi Arabia can speculate regardless of the financial climate and still make good returns, but his team must now include a first class facilities manager to make small sums add up and he must have been through good and bad times in equal measure (I mean the experience). SPECULATE DON'T GAMBLE IS MY MESSAGE. Hal-Luke Savas MBA FCIM MBIFM ICIOB aff.CIBSE londonmanagement@aol.com